By Fahd Mohammed bin Jim'ah Analysts have differing views on whether the plan to float Saudi Aramco shares will be beneficial to the economy or not. Some have even expressed apprehension over privatizing the Kingdom's underground resources, such as oil and gas. However, the government will always have a domineering and studied view on the subject. National companies seek improvements in operational efficiency and profits within the framework of corporate governance and transparency as part of the privatization process. Thereby, enterprises increase their investments, whether in their field of activity, which is preferred, or by means of vertical and horizontal expansions. Offering five percent of Saudi Aramco shares to the public does not aim at raising short-term funds and cash liquidity. Rather, the potential for continuous improvements in performance and increase in profits in the long run are the reasons behind such an offering. There are several factors determining the public ownership or privatization of oil and gas companies. These factors include oil and gas supply security, prices and costs, competitiveness levels, speculations in futures contracts, energy efficiency, and cost of renewable and alternative energy. Despite initiating the process of privatizing the international oil and gas industry on a large scale in the late '70s, not much research has been conducted on the issue despite its political and economic importance. Nevertheless, studies of any kind cannot conclusively establish whether state-ownership or private ownership in beneficial to the economy. Neither can they determine whether privatization will improve company performance and operational efficiency. Most theorists argue that private companies in competitive markets are usually more efficient and profitable than their state-owned counterparts. A study titled, "Privatizing national oil companies: assessing the impact on firm performance," was conducted by Christian Wolf of the University of Cambridge in 2008. Using a dataset of 60 public share offerings by 28 National Oil Companies, it showed that privatization leads to significant improvements in performance and efficiency. Over a seven-year period after the Initial Privatization Offering, return on sales increases by 3.6 percentage points, total output by 40 percent, capital expenditure by 47 percent, and employment intensity – in proportion to assets – drops by 35 percent. Employee productivity also increased by 30 percent. During preparations for selling the shares of national companies in the pre-offering phase, these companies decreased their operational costs by 11 percent and reduced their headcount by eight percent. Based on these results, it is evident that partial privatization in the oil sector improves performance in the capital markets, without the government needing to cede majority control. This is what is expected to happen to Saudi Aramco.
